APPENDIX
ENVIRONMENTAL AUDIT COMMITTEE INQUIRY INTO THE MULTILATERAL AGREEMENT ON INVESTMENT
(MAI)
RESPONSE BY THE DEPARTMENT OF TRADE AND INDUSTRY
AND THE DEPARTMENT OF THE ENVIRONMENT TRANSPORT AND THE REGIONS
TO THE COMMITTEE'S REPORT (FIRST REPORT, 1998-99,
HC58)
INTRODUCTION
Since the Department last submitted a memorandum
to the Committee, two developments have taken place.
2. On 26 November 1998, the World Trade Organisation
Working Group on Trade and Investment met in Geneva. The group
agreed to recommend to the WTO General Council that its life should
be extended, but that this should be without prejudice to any
future decision by the General Council regarding preparations
for a new Round. The effect of this is to enable the valuable
discussions that have been taking place in the group to continue,
while leaving open the option of whether WTO Ministers may wish
to mandate negotiations on investment in future. A further meeting
of the group subsequently took place on 22-23 March 1999.
3. On 3 December 1998, representatives of those
countries who had been negotiating the MAI (minus France) met
in Paris for informal consultations. Following this meeting, the
OECD Secretariat issued the following statement:
"Negotiations on the MAI are no longer taking
place. However, the officials agreed on the importance of multidisciplinary
work on investment at OECD. There are a number of important issues
on which further analytical work and inter-governmental co-operation
are needed. The officials agreed that this work should be carried
out in a transparent manner and should involve all OECD members
as well as interested non-member countries, including those that
participated as observers to the negotiations. The officials reaffirmed
the desirability of international rules for investment".
4. The Committee's report makes a number of references
to "a future MAI". The Government's preference is to
avoid such terminology. Any future international investment agreement
is likely to be very different from the MAI,. And the continued
use of the term may cause unnecessary confusion.
RESPONSES TO DETAILED CONCLUSIONS AND RECOMMENDATIONS
i) We conclude that OECD governments, including
the previous UK administration, failed to ensure that the MAI
process reflected commitments on sustainable development and the
integration of the environment in policy-making made in 1992,
at Rio, and thereafter. (Paragraph 17)
ii) The new UK Government reversed the UK's negotiating
stance on environmental concerns but did not take the view that
the lack on environmental appraisal was a fatal flaw in the negotiating
process. (Paragraph 18)
5. In May 1997, incoming Ministers took the view
that the treatment of these issues had been unsatisfactory to
date and that the line taken by the UK on the subject of environmental
protection needed to be changed. It was in the light of this policy
change that the UK proposed an environmental review of the MAI.
The Government remains of the view that good progress was being
made towards addressing these issues in the context of the MAI
negotiation, although we accept that uncertainties remained which
would have needed to be addressed had MAI negotiations been resumed
in the autumn of 1998.
iii) The UK's contribution to the environmental
review of the MAI was criticised by the NGOs in that its output
was half a page of text without supporting facts or analysis and
its conduct had not been open to their participation... We were
surprised and concerned to learn that the Environment Agency had
not been directly involved in this review. (Paragraph 20)
6. The UK's contribution to the environmental
review of the MAI took place against the background of DETR's
expertise in regulatory law, policy development and enforcement
and close contacts with environmental NGOs. The UK's policy was
that it would be unacceptable for the MAI to detract from the
powers of domestic regulators (including the Environment Agency)
to carry out normal, non-discriminatory and transparent regulation.
The Government would not have signed an MAI that did not address
t5his issue in a satisfactory way. The Environment Agency subsequently
participated in a meeting with Ministers on 26 November 1998 to
discuss the way forward after the MAI.
iv) We conclude that international agreements
on issues such as trade, investment, employment standards and
environmental protection should be the subject of focussed negotiations
in appropriately expert fora. However, we regard it as imperative
that in these fora the relationships between the proposals under
discussion and other initiatives, whether existing or in development,
are fully analysed from the outset. Such analyses must look both
at the risks of conflict and the opportunities for confluence.
(Paragraph 25)
7. We agree.
v) We conclude the draft MAI posed a serious
risk to the conduct of environmental regulation and we note that
the Government's assessment supports this conclusion. We further
conclude that, due to the failure of negotiations to consider
these issues from the start of the process, the proposals tabled
to address this risk were inadequate. (Paragraph 32)
8. The Government's view was that there was no
inherent reason for conflict between environmental regulation
ion the one hand and the principles of non-discrimination that
lay at the heart of the MAI on the other. The UK's statement of
this, which was submitted to the OECD in March 1998, found no
UK environmental laws which discriminated de jure on the basis
of an investor's nationality (this reflected the UK's overall
non-discriminatory approach). However, it identified a risk that
the UK's environmental regulators might be accused of doing so
in the context of individual regulatory decisions. The Government
does not share the Committee's view that the failure to consider
this issue at the outset of negotiations made the search for a
solution impossible. Following the fuller consideration of these
issues prompted by the UK's review proposals, there was a widespread
recognition among negotiators of the need to solve this problem,
and it is our opinion that a solution could have been found that
would have been acceptable to all parties.
vi) We regard the lack of even an agreed UK
position on how to address the relationship between the MAI and
MEAs as a serious omission at such a late stage in negotiations.
(Paragraph 34)
9. The issue of possible conflict between the
MAI and MEAs was inextricably linked to the issue of possible
conflict between the MAI and domestic regulation in general (not
just environmental regulation). So it was not possible to solve
the MEA issue in isolation when the text had not been settled
in certain key respects. However, it was clear that many EU and
other colleagues shared the Government's commitment to finding
a solution before any MAI could be concluded, and we were working
intensively on solutions when negotiations ceased.
vii) We recommend that environmentally responsible
foreign investment be encouraged by the inclusion, in any future
MAI, on incentives or obligations for companies to follow best
practice in the management of their environmental impact. (Paragraph
39)
10. The Government shares the Committee's view
that it is desirable for UK firms to observe high standards of
behaviour when investing overseas. Evidence suggest that many
British companies are observing standards well beyond those that
they are obliged to adhere to. We seek to give support and encouragement
to voluntary measures taken by firms to this end in areas such
as reporting on their environmental performance and the use and
transfer of environmentally-friendly technology. The UK is participating
in the review of the OECD Guidelines for Multinational Enterprises,
which set out the firm expectation of member governments as to
how their investors should conduct themselves overseas. The issue
of encouraging compliance with the Guidelines- both when the host
Government itself subscribed to the Guidelines and when it does
not- is one of the key issues being addressed in the review.
11. However, the Government sees the insertion
of binding obligations on companies in an international investment
agreement a problematic. We take the view that it si for host
countries- subject to any international commitments that they
have entered into- to specify the standards of environmental protection
that they require of companies operating on their soil (including
foreign investors) and to enforce these standards. We do see merit
however in seeking agreement to strong environmental provisions
being included in the Guidelines for Multinational Enterprises
being negotiated within OECD, and we are pursuing this. In addition,
we will continue to support efforts to improve environmental management
and standards of enforcement in developing countries.
12. The Committee's report makes a specific mention
of possible linkage being environmental standards and export credits.
This issue is currently under discussion by the Export Credit
Guarantee Department and its OECD counterparts.
viii) We were deeply concerned over the number
of questions raised by the environmental review; the content and
status of the March 1998 environmental proposals; and the lack
of agreement, even within the UK Government, on how the relationship
between the MAI and multilateral environmental agreements might
be addressed. (Paragraph 41)
ix) The MAI appears to us to stand as a prime
example of the failure of the bolt-on approach to addressing the
economic, environmental and social impacts of policy. (Paragraph
42)
13. See our answers to recommendations (i), (v)
and (vi) above.
x) We conclude that global issues require
global negotiations. The participation of developing countries
in negotiations on an MAI is required for the establishment of
a genuine consensus. Such a consensus can be built upon, while
anything less will only store up problems for the future. (Paragraph
51)
14. We agree that it would be desirable to include
developing countries in a future international investment negotiation.
We are continuing to support UNCTAD's programme of analysis and
capacity-building to help developing countries participate in
discussions on international investment. The fir5st six of a series
of UNCTAD technical papers on issues in international investment
agreements were published earlier this year.
xi) We regard the swell of public opinion
against the MAI to have been assisted by the failure of the Government
to:
- exert a demonstrable grip on the process;
- reassess and state the problems that the MAI
was intended to address, the benefits that it was intended to
confer, and the risks that it involved; and
- provide time for appropriate Parliamentary
discussion, including debate in Government time, on the issues
involved in the light of the emerging concerns of backbenchers
on all sides of the House. (Paragraph 59)
15. We accept that the Government was unable
to persuade all elements of British public as to the merits of
MAI. There remained scepticism in some quarters as to whether
a legal framework for foreign investment based on the principle
of non-discrimination was strictly necessary. There was also a
perception that MAI would have had undesirable consequences- both
direct and inadvertent- both for the UK and for the wider world.
16. We do not accept this stemmed from a lack
of political input or lack of inter-departmental coordination.
Since May 1997, Ministers in DTI, DETR and DfID in particular,
all took a close interest in the progress of MAI negotiations
and received regular reports from their officials, thereby ensuring
that the UK delegation to negotiations was pro-active in raising
key issues.
17. The Government's view is that the MAI received
substantial Parliamentary scrutiny as the negotiations progressed.
In particular, the MAI negotiation had been under scrutiny by
the House of Commons European Scrutiny Committee since March 1997,
a process that included oral evidence from the then Parliamentary
Under Secretary of State, DTI (Mrs Barbara Roche MP). However,
Government never ruled out calling a full debate on floor of House
in Government time if the right moment had arisen.
xii) In the light of the difficulties encountered
at the OECD we believe that the Government should first reassess
what are its objectives and priorities in pursuing an MAI. (Paragraph
62)
18. We agree that it is important for the Government
collectively to assess its objectives and priorities with regard
to any future investment negotiation. We are in regular contact
with the various non-Government groups in UK who have an interest
in this matter. We are also in discussion with their international
counterparts both in EU and beyond to determine what might be
negotiable. The Secretary of State for International Development
chaired a roundtable discussion on international investment rules
on 8 March1999, involving developing country representatives,
investors, NGOs, academics and international organisations.
xiii) As regards the process of negotiation,
we would regard key principles that the UK should press for to
be:
- the full participation of developing countries;
- the inclusion of environmental appraisal from
the start of any preparatory work;
- an open process, benefiting from the input
from the wider policy community and civil society, and
- transparent, with regular and full reporting
on progress on the identified objectives, benefits and risks.
(Paragraph 64)
19. We agree that developing countries should
be fully involved in future negotiations, and that the promotion
of SD world-wide (including addressing environmental concerns)
should be central to the thinking of negotiators from the outset.
It is Government's policy to press for maximum of openness and
transparency in trade and investment discussions, consistent with
need to preserve scope for government to government negotiations.
xiv) As regards the substance of negotiation,
we conclude that the key environmental issues to be addressed
are:
- the ability of governments to develop and
implement environmental regulation with due regard to the principles
of precaution and polluter responsibility;
- the encouragement, in line with current trends,
of environmentally, and socially responsible business practices
in balance with the level of rights and recourse afforded by any
new arrangement;
- the ability of developing countries to implement
effective national sustainable development strategies; and
- the ability of governments, collectively to
develop, and individually to implement, multilateral environmental
agreements. (Paragraph 65)
20. We agree, although we would stress need to
work on basis of consensus involving all those present at the
negotiating table. DfID will continue to support development and
implementation of National Sustainable Development Strategies
to help ensure the proper integration of environmental, social
and economic considerations in developing countries. The UK with
the European Commission has taken the lead in work on these strategies
in the OECD environment and development working groups.
xv) We believe that the negotiation of any
MAI by the WTO should not, at this stage, be regarded as a foregone
conclusion. We regard the proper sequence to be, as suggested
above, the identification of the appropriate scope for any new
negotiation and its general aims and objectives, and then the
identification of the most appropriate forum—rather than
the other way round. (Paragraph 68)
21. The UK Government's view is that the establishment
of a liberal, rules-based framework for foreign investment, grounded
in the principles of non-discrimination and transparency, could
deliver considerable benefits both for UK investors and for the
world economy as a whole. Developing countries stand to benefit
from a more stable climate for investment, which such a framework
would help create. The UK, together with its EU partners, has
called for a comprehensive new Round of negotiations to begin
in the WTO next year, and we think that investment should be one
of many items on the agenda. The WTO already deals with investment
issues through the General Agreement on Trade in Services (GATS)
and the Trade Related Investment Measures (TRIMs) agreement.
22. However, the UK's support for an investment
negotiation in the WTO must be clarified in two respects.
a) We expect that any framework of WTO rules
on investment would look very different from the MAI. It will
have to be acceptable to all members of the WTO, and their presence
at the table will make for a completely different negotiation.
b) We do not see the WTO as the only forum in
which to address investment-related issues. The Government is
seeking to make progress on these issues in all appropriate international
fora and will play an active role in the work of the UN Commission
on Sustainable Development on the cross sectoral theme of financial
resources/trade and investment/economic growth in the year 2000.
xvi) Wherever, if anywhere, a negotiation
takes place we recommend that particular attention should be given
at the outset to setting up the negotiation in a way that ensures
environmental and social issues are considered on an equal footing
with other concerns, and that appropriate participation is secured
from the start. (Paragraph 70)
23. It is the Government's objective to ensure
that all international institutions work in a mutually reinforcing
way. We are contributing actively to the work of the WTO Committee
on Trade and the Environment, whose remit is to examine the relationship
between trade rules and the environment and, if necessary, to
make recommendations on the need to change any trade rules.
xvii) In any new negotiation on investment
that gives adequate attention to environmental and social aspects
it will be important to clarify the responsibilities of different
European institutions at the outset, and to establish appropriate
machinery for ensuring that European negotiating positions took
full account of environmental and social aspects after an open
consultation process. (Paragraph 72)
24. We agree. We welcome the recent decision
by the European Commission to carry out a sustainability study
of the EU's agenda for the new Round.
xviii) We urge that the Government take these
ideas, as well as our earlier conclusions and recommendations,
into consideration in preparing the ground for any further development
of a framework for international investment. IN the light of the
OECD experience it is clearly important that Parliament is kept
informed as to progress on these issues and given the opportunity
to express its opinion before binding decisions are taken. (Paragraph
73)
25. We agree.
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